[S]ome governments were worried that overly rigid rules on imposing losses on investors and creditors—a so-called bail-in—could increase banks’ funding costs and destabilize Europe at a time it is still trying to exit from a yearslong financial crisis.

And this from Nicholas Comfort and Sonia Sirletti of Bloomberg News:

A European Union plan to impose losses on bondholders during bank rescues means borrowing costs for weaker banks will rise unless they bolster their finances, said analysts and fund managers including Simon Adamson at CreditSights Ltd.

“There’s going to be more differentiation of banks based on their standalone financial situation,” Adamson said by telephone from London today. “Banks with weaker capital levels or profitability will find it tough to get financing or at least will pay a higher price.”

The effect is showing in the $80 million iShares MSCI European Financial Sector Index Fund (EUFN), which is down 0.7% at $19.87 at a time when the U.S.-tracking Financial Select Sector SPDR Fund (XLF) is rising 1.2% to a one-week high at $19.56.

Global X FTSE Greece 20 ETF (GREK) and iShares MSCI Spain Capped Index Fund (EWP), two funds that well reflect investors’ fear and/or greed over European sovereign debt, are also down on Thursday, adding to their 2013 losses.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.